Raising Taxes

Raising taxes is no fun. Sen. Lawton Chiles said that when he brought up a prospective increase with President Reagan on Wednesday, it "ruined his day." But if the president is at all serious about reducing the frightful budget deficits now projected, and if the defense budget is to continue to grow, the need for a tax hike is indisputable.

Defense is much the largest claimant on general revenues. The compounding effect of high defense growth rates over the last and next few years means that--even with Social Security on a self-financing basis--the government needs to raise taxes by more than $100 billion annually to close the budget's built-in deficit in 1988.

The fairest way to raise taxes would be by continuing last year's progress toward reforming individual and corporate income taxes. With all the preferences now in the tax code, the amount of taxes that businesses or high-bracket taxpayers owe has far more to do with their tax advisers than with their income. Each of these tax breaks, however, is guarded by a ferocious lobby that will insist that any tampering will lead directly to the decline of the American economy and/or the destruction of the American family.

Congress needs to plug some potentially large leaks in the federal Treasury--tax-leasing by governments and nonprofit organizations, for example, and private purpose tax-exempt financing. And for rectitude's sake, it should curb some especially egregious tax subsidies, such as those for business entertainment and dubious charitable donations.

A determined effort to move beyond this to some of the larger tax subsidies--things like capping mortgage and consumer interest and sales tax deductions-- might yield $10 billion to $25 billion. This, however, would require far stronger presidential and congressional leadership than now seems likely.

With oil prices declining, an energy tax is a very attractive option. A $5-per-barrel tax on both imported and domestic oil would raise about $20 billion. This, however, would require taking on an alliance of major oil-producing and consuming states --not to mention the oil industry itself.

Next in line of preference is a surtax. A 10 percent surtax on corporate and personal income would raise about $50 billion in 1988. Essentially it would take back part of the administration's sacred three- year tax cut. But it's a better option than repealing the indexing of the tax code now scheduled to start in 1985, because it would hit high-bracket taxpayers as well as those with moderate incomes and because it would require Congress to make an affirmative effort to pay for the budget that it votes.

The sooner one or more of these options is put into law, the less will be the need for future tax increases. Each year that the deficit is allowed to grow adds billions to the annual interest costs on the national debt--and that means still more taxes will be needed to close the budget deficit.